The final landlords information to Labours’ new Renters’ Rights Bill
Landlords are bracing for another onslaught of regulation, fees and restrictions which could eat into profits and strangle their investments with red tape.
The Government’s new Renters’ Rights Bill is expected to become law by next summer and is likely to be the final straw for many of Britain’s 2.3 million landlords.
On top of that, next month’s Budget statement could make buy-to-let even tougher.
Money Mail trawls through the small print to unearth what the bill will mean for landlords and everything you need to know to make sure you are ready when it comes into force.
Hairy tennants: The incoming Renters’ Rights Bill will mean landlords will not be able to refuse ‘reasonable’ demands from tenants to have a pet in their property
Why are they so worried?
Polly Neate, head of housing charity Shelter, describes the bill as a ‘watershed moment for England’s 11 million renters’.
It is designed to increase rights for tenants, for example by banning no-fault evictions and discrimination against tenants with children or who are receiving government benefits.
However, landlords warn that unintended consequences could leave them – and tenants – worse off. Jonathan Rolande, co-founder of the National Association Of Property Buyers, warns that costs for tenants will only increase as landlords deal with more red tape and many exit the market.
‘Because there will be the same demand for rentals but a smaller supply of landlords there will be, say, 12 people looking at every property instead of ten,’ he says. ‘Rents will go up because of this.’
A survey from Simply Business, which provides landlord insurance, said 59 per cent are considering selling in the next 12 months due to the new legislation.
‘It goes without saying that landlord/tenant relationships should be transparent and fair, but it’s clear from our data that the increased costs associated with new regulations are forcing many to consider whether they’ll be able to continue letting property,’ says Bea Montoya, chief operating officer of Simply Business.
Greg Tsuman, lettings director of Martyn Gerrard Estate Agents and former president of ARLA Propertymark, a trade association for lettings agents, adds: ‘There’s quite a lot of thought going into this legislation, although it is very clearly weighed in tenants’ favour.
‘The perception is that over the past several decades, the scales have tipped the other way [in favour of landlords]. I think that’s a perception rather than reality and the unintended consequence of this new legislation is that tenants will end up paying higher rents, not lower ones.
‘In reality, there’s just not enough supply of rental property and the Government is putting a Band-Aid on a massive wound that was formed over decades.’
So what are the key changes upsetting landlords?
End of no-fault evictions
One of the key changes will be a ban of Section 21 evictions. At present, landlords are permitted to give tenants two months’ notice to exit without giving a reason.
Although this element of the bill has been given the most attention, Bea Montoya at Simply Business says that for most landlords other elements of it are likely to be more concerning. As many as 70 per cent of landlords have never used the rule to evict a tenant.
Key change: Under the new bill, landlords will be required to give tenants four months’ notice instead of two when they want to sell or move into their own property
Jonathan Rolande, from Worthing, whose company has a number of properties in West Sussex, Stoke-on-Trent and London, agrees.
‘How many landlords are throwing out tenants with a Section 21 when they’re good at paying and they’re at roughly the market rate? I would say almost none. Why would they?’
Rolande is more concerned about another element. Under the new bill, landlords will be required to give tenants four months’ notice instead of two when they want to sell or move into their own property.
However, tenants need only give two months’ notice. ‘In the property market four months is a massive chunk of time, so things can change,’ says Rolande.
‘You can decide to sell in August, for example, and then you get an empty property at Christmas, when the property market is at its worst and you struggle to sell for months.’
Fixed-term tenancies will also be banned. That means tenants will be able to stay indefinitely until they decide to end the tenancy by giving two months’ notice.
Landlords will still be able to go to court to evict tenants if they do not pay their rent, but they must wait until three months of arrears have built up, rather than the two required currently.
It is still unclear whether the fixed-term tenancies ban will apply to student housing, where contracts may be only for term time or for fixed lengths.
If it does, it could have a huge impact on rental prices, says Graham Hayward, head of rental guarantor service Housing Hand.
‘This would have a major impact on occupancy rates for these types of providers. That could have a knock-on effect on prices and payment terms that sends a shockwave across the entire rental sector.’
Landlords can’t ban pets
The bill will mean landlords will not be able to refuse ‘reasonable’ demands from tenants to have a pet in their property.
They will, though, be able to request that tenants take out insurance against damage caused by animals they keep in it.
Rolande says he ‘feels a bit sorry for neighbours’ when it comes to tenants having pets. ‘Potentially where tenants are able to force the issue and get a dog into a flat or something like that, that may disturb neighbours, so there’s going to be issues around that.
But, in my experience, most tenants are sensible.’ If tenants feel they have been unreasonably denied a pet they can take their case to a new free ombudsman or to court.
Landlords cannot discriminate against those on benefits or with children. The Government says landlords will still ‘have the final say’ on who they let their property to and can ask for references.
But they must do this based on affordability, not on the basis that the prospective tenant has children or is in receipt of benefits.
How will I choose who to rent to?
Dog lover: but Neel Patel is concerned that he won’t be able to refuse pets
Neel Patel, who has 15 properties in London, calls the rental act ‘scary’. ‘Landlords are seen as social pariahs now,’ says Neel, 39.
‘I understand there are some bad landlords out there and something needs to be done.’
He is concerned by several issues in the bill, including the stipulation that he cannot unreasonably refuse pets. ‘I love dogs, but I don’t believe a dog should be in a studio flat upstairs.’
Neel is also worried that, because of the extreme demand for property, anyone who he does not rent to might have a claim for discrimination.
‘At the moment when I put a two-bedroom flat on the market I might get 100 calls in 24 hours.
People can’t bid so how can I decide who to rent to? Someone’s going to have a claim and they’re going to bring this new ombudsman into play which, on the face of it, seems great but how much is this going to cost us?’
The father of two is also concerned at properties being left empty because of having to give long notice periods before selling.
‘Who pays the mortgage at that point? Why would anyone want to be a landlord now?’ he asks. ‘Everyone is selling and then what will happen?’
Changes on how to set rents
Landlords will only be able to increase rent once a year and they will have to give two months’ notice.
They can only increase it to the ‘market rate’ – the price that the property would achieve if it was newly advertised to let.
Landlords will also no longer be able to write rent review clauses into tenancy contracts that set out when bills will rise and by how much. Landlords will also be banned from accepting offers above the advertised rent.
If they are not happy, tenants will be able to challenge rent increases for free at a First-Tier Tribunal if they believe they are above the market rate.
New rules on maintenance
The Decent Homes Standard, which applies to social housing, means that kitchens cannot be more than 20 years old and that properties must have adequate insulation.
These standards will also apply to private rentals when the bill becomes law.
Landlords will also be bound by Awaab’s Law, which means that any health hazards in a private rental property must be investigated within 14 days.
Rising cost of red tape
While the new ombudsman will be free for tenants, landlords fear they will end up paying extra for this service as well as extra fees for compliance with other rules within the Renters’ Reform Bill.
Greg Tsuman, from Martyn Gerrard, said the way lettings agents charge their clients will ‘radically change’, with costs rising, which will in turn push up rents.
‘The more regulation and legislation is introduced, the more pressure there is on the rents to go up,’ he says.
‘And – as landlords exit the market because they haven’t got the confidence to keep in the business and new landlords are dissuaded from entering the market – the prices will continue to rise, as that is what supply and demand will dictate.’
Rent rises: Landlords fear the extra fees and costs they face from the Renters’ Reform Bill will force them to hike rents
Councils will have greater power to fine landlords who flout the rules, with minor offences incurring a £7,000 fine and serious ones attracting penalties of up to £40,000 or criminal prosecution.
Property experts are also concerned that the bill will create a backlog in court as landlords are forced to use more formal methods to evict tenants.
There are already court delays in this area, and though Housing Minister Matthew Pennycook has pledged to ‘invest in additional court and tribunal capacity to handle any extra hearings generated by these reforms’, Timothy Douglas, head of policy and campaigns at Propertymark, says that there are still concerns.
‘There must be a commitment to ensure the court system and grounds for possession are robust and fit for purpose,’ he says.
Other things to Make life harder
Experts warn there are other changes that may make being a landlord less attractive and rents more expensive.
These include a requirement for rented properties to be more energy efficient, with an energy performance certificate rated C or above by 2030 as part of the Warm Homes Plan.
This could require landlords to make homes more energy efficient by, for example, changing the windows or boiler or installing insulation.
Speculation is also mounting that Chancellor Rachel Reeves will announce an increase in capital gains tax.
Currently landlords pay CGT of 18 per cent or 24 per cent on profit they make on selling a property, depending on whether they are a basic or higher-rate taxpayer.
But the Government could raise the rates in line with income tax, meaning landlords would face paying 20 per cent, 40 per cent or 45 per cent on capital gains depending on their income tax band.
